Despite its controversial past, thalidomide is currently under investigation for the treatment of several disease types, ranging from inflammatory conditions to cancer. The mechanism of action of thalidomide is complex and not yet fully understood, but there is some evidence to suggest that metabolism may play a role. Consequently, there has been a considerable effort to characterize the metabolism of thalidomide in recent years. Thalidomide undergoes biotransformation by non-enzymatic hydrolysis and enzyme-mediated hydroxylation to form a multitude of metabolites. Metabolite identification and reaction phenotyping studies have been performed and will be discussed in this review in addition to interspecies differences in thalidomide metabolism.